Understanding how GST works can help you stay compliant, reduce potential financial risks, and avoid unnecessary penalties. In this blog, we will provide a breakdown of GST registration, filing requirements, common mistakes to avoid, and practical tips for small business owners.
What is GST?
GST is a tax added to most goods and services in New Zealand (including imports), currently set at 15%. It is a tax for people who buy and sell goods and services.
If your business turnover exceeds $60,000 in a 12-month period, you must register for GST. However, voluntary registration is an option for businesses below this threshold if beneficial. Registering for GST allows businesses to claim credits on GST paid to suppliers, but it also means adhering to specific filing requirements.
Options for Registration: Frequency of Filing
Registered businesses are required to submit regular GST returns to the Inland Revenue Department (IRD). These can be filed monthly, bi-monthly, or six-monthly, depending on your turnover and preference.
Generally, most businesses opt for the bi-monthly return frequency. This means it’s a long enough period that you’re not spending huge amounts of time on admin for preparing and filing the GST return every single month, but also that it’s short enough to mean that you don’t get a twice a year heart attack at the amount of GST you may end up having to pay.
Options for Accounting Basis
There are two main options that you need to choose between when you register for GST.
💰 Payments Basis
This is the most common accounting basis used for filing GST returns, as it is based on payments that you actually receive into the business, and payments that you make from the business. Think of it as everything that comes into and goes out of the business bank account. If the funds have physically been moved around, then it will probably apply to the GST return period the movement of funds fall into.
💰 Invoice Basis
This is popular for businesses with a high cash income, but paying for supplier’s bills on credit terms. Think of supermarkets for this one. If you receive an invoice from a supplier, you are able to claim a credit on your GST return. However, if you send an invoice to a customer (and they haven’t paid you yet), you still need to pay the GST (that you may not physically have in your bank account yet). This can cause cashflow pressures on small businesses, so it’s important to understand how Invoice Basis works and whether it’s a right fit for your business.
⚠️ Hybrid Basis
There is also Hybrid basis, which is a mix of both options above. This method is not commonly used by small businesses because of negative cashflow consequences. This is where you use the invoice basis for your sales income but then use payments basis for your expenses.
If you’re not sure on which method may suit your business best, get in touch with our team and we can help you with your registration.
Filing GST Returns
Accurate record-keeping is crucial for filing correct returns and avoiding penalties. Many businesses choose to file returns online through the IRD’s myIR platform, which offers convenience and efficiency.
Most accounting software’s (such as Xero or MYOB) also have a direct integration from their GST return report format into the myIR platform, making filing your GST returns even easier.
If you’re new to business, you still need to ensure that your accounting software is set up correctly and actually is connected to IRD, otherwise you could be faced with late filing penalties and use of money interest – which is not ideally to a new business starting out!
Our team can help set up your accounting software and ensure it is connected to IRD for you.
Common GST Mistakes
⚠️ Incorrect claims: Claiming GST on non-claimable expenses, such as private expenses, is a frequent error. Clearly separating personal and business expenses is essential.
📂 Poor record-keeping: Failing to keep receipts and invoices for purchases can lead to inaccuracies during audits. Digital solutions like cloud-based accounting software can simplify this.
⏰ Missed deadlines: Late filing can result in penalties and interest charges. Setting reminders or engaging a professional bookkeeper can help mitigate this risk.
Conclusion
There is a lot to think about when you’re new to business and unsure of whether you need to register for GST or not.
Get in touch with our team and they can help support you every step of the way.
